D

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 2 Statement of Comprehensive Income (SCI)
Less
on

What I Need To Know

This lesson aims to teach you the elements and details of the Statement of
Comprehensive Income (SCI) which reports the revenue, expenses, and income/loss
for a particular period. This lesson also aims to teach you the different items for a
service business and merchandising business.

At the end of this lesson, you are expected to identify the elements of the
Statement of Comprehensive Income and describe each of these items for a service
business and merchandising business. You are going to prepare a Statement of
Comprehensive Income (SCI) for a service business using the single-step approach
and prepare a Statement of Comprehensive Income for a merchandising business
using the multiple approach.
What I Know

Directions. Read and analyze each item carefully. Write the letter corresponding to the best answer
on your answer sheet. 1 point each.
1. This is a financial statement that informs the reader about the “performance”
and activities of the company for a certain period.
A. Statement of Comprehensive Income
B. Statement of Financial Position
C. Statement of Changes in Equity
D. Statement of Cash Flow

2. This is typically the date of the statement of comprehensive income?

A. “As of December 31, 2019”
B. “For the period ended December 31, 2019”
C. Either A or B
D. None of the above

3. Which of the following is an element of a Statement of Comprehensive Income?

A. Sales
B. Accounts Payable
C. Notes Receivable
D. Capital
4. Which of the following is an element of a Statement of Comprehensive Income?
A. Notes Payable
B. Bonds Payable

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 C. Service Fee
D. Capital

5. Which of the following is an element of a Statement of Comprehensive Income?

A. Note Payable
B. Interest Expense
C. Interest Receivable
D. Bonds Payable

6. Which of the following is an element of a Statement of Comprehensive Income?

A. Interest Payable
B. Interest Expense
C. Cash
D. Prepaid Rent

7. Which of the following is an element of a Statement of Comprehensive Income?

A. Prepaid Insurance
B. Gross Profit
C. Furniture and Fixture
D. Equipment

8. Which of the following is only ancillary to the entity’s operation?

A. Professional fees charged by an auditing firm
B. Sales Revenue earned by a convenience store
C. Sales Revenue earned by a drug store
D. Gain on Sale of land

9. Which of the following is classified as selling expenses?

A. Salaries of the president
B. Salaries of sales executives
C. Depreciation of administration building
D. Depreciation of office equipment

10. Which of the following is the correct gross profit formula?

A. Sales + Cost of Sales = Gross Profit
B. Sales + Gross Profit = Cost of Sales
C. Sales – Gross Profit = Cost of Sales
D. None of the above

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 What’s In

The end product or output of accounting (financial accounting, to be specific) is useful

financial information. This useful financial information is the “story” that accounting
tells to the interested users. Useful financial information helps the owner to answer the
question, “Should I invest more cash in the business?

Creditors are also guided by this information in answering the question,

“Should we lend more money to the business?”

Financial information is contained and communicated through the financial

statements. Financial statements are like chapters of a novel, telling different stories
of an interrelated subject. Specially, financial statements are organized depictions of
the events that happened in a business. A complete set of financial statements are
composed of the following (IASB 2011):
1. Statement of Financial Position or Balance Sheet
2. Statement of Comprehensive Income or Income Statement 3.
Statement of Changes in Equity
4. Statement of Cash Flow

What’s New

To achieve the objectives of this lesson, you must remember to do the following:
✓ Read the lessons carefully.
✓ Follow all directions and given instructions.
✓ Answer all given tests and activities.
✓ Learn to familiarize the following terms:

TERM DEFINITION

Statement of Comprehensive Income Also known as the income statement. Contains

the results of the company’s operations for a
specific period of time which is called net
income if it is a net positive result while a net
loss if it is a net negative result. This can be
prepared for a month, a quarter or a year.
(Haddock, Price,
& Farina, 2012)

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Temporary Accounts Also known as nominal accounts are the
accounts found under the SCI. They are called
such because at the end of the accounting
period, balances under these accounts are
transferred to the capital account, thus
having only temporary amounts
and resulting to zero beginning balances at the
beginning of the following year. (Haddock,
Price, & Farina, 2012)Examples of
temporary accounts include revenues,
sales, utilities expense, supplies expense,
salaries expense, depreciation
expense, interest expense among others.

Activity 1.2.1. Prepare a Personal SCI:

1. Get a piece of paper.

2. Write your monthly allowance (computed by daily allowance x number of
days in a month)
3. Write the amount you spend on food, transportation, phone load, etc.
(make it monthly to match your allowance)
4. Deduct the amount you spend from the amount of your allowance
5. Associate allowance with revenue and spending with expense with the net
amount as net income.

Processing Questions:
1. How much is the snet amount?
2. Do you have greater revenue than your expenses? Or vice versa?
3. There might be some cases your computation is zero or even
negative. This means that your expenses are higher than your
income/revenue.
4. A business can still earn even without having cash and can still lose
even with a full bank account. You will understand these concepts as
you go through with the lesson.

Reflect on the importance of having a personal statement of comprehensive income.

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 What Is It

Lesson 2.1 Nature of Statement of Comprehensive Income

The Statement of Comprehensive Income informs the reader about the

“performance” and activities of the company for a certain period (e.g. for the period
ended December 31, 2019). It generally contains the revenues and expenses incurred
by an entity for the specified period.

A Statement of Comprehensive Income is conventionally compared to a running video

because it presents an entity’s business activities from the start to the end of a period.

Below are the key features of a statement of comprehensive income.

Key Features of Statement of Comprehensive Income (Income Statement)

1. The Heading
The statement of comprehensive income is a financial report. As a financial
report, it must be properly identified and dated. The appropriate title of the
statement will enable the user to differentiate the statement of comprehensive
income from the other financial reports issued by the entity. The heading
includes the Name of the Entity, the Title of the Report (i.e., Statement of
Comprehensive Income, and the period it covers (i.e., For the period ended
December 31, 2019)

2. Revenues
Revenues arise in the course of the ordinary activities of an entity and are
referred to by a variety of different names including sales, fees, interest,
dividend, royalties, and rent (IASB 2010).
Revenues are the first line item in the statement of comprehensive income.
Smaller and less complex entities will have one or two sources of revenues.
Larger and more complex entities, on the other hand, will have multiple sources
of revenues, recorded when earned.

3. Expenses
Expenses arising in the course of the ordinary activities of the entity include,
for example, cost of sales, wages, and depreciation. They usually take the form
of an outflow or depletion of assets such as cash and cash equivalent,
inventory, property, plant and equipment.
Classifying expenses for merchandizing concern is more complex than in a
service concern. For a merchandizing concern, the expenses are classified as
cost of sales, selling expenses, and administrative (operating) expenses.

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 The cost of sales is the amount paid or payable by the business entity to its
supplier for the merchandize sold to the business entity’s customers. Cost of
sales will take a general formula as seen below:

Beginning Inventory
Add: Net Purchases
Total Goods Available for Sale
Less: Ending Inventory
Cost of Sales

Net purchases for the year are the total amount paid or payable to suppliers for
the period. Net purchases follow a formula as shown below:

Gross Purchases
Less: Purchase Discounts
Purchase Returns
Add: Freight-In
Net Purchases

4. Gain and Losses

Gains represent other items that meet the definition of income and may
or may not, arise in the course of the ordinary activities of an entity. To reiterate,
gains are incidental to the operation of a business. For example, if a law firm
sells its office printer for P 5,000.00 when the carrying amount of the printer is
P 4,000.00, a gain amounting to P 1,000.00 must be recorded.
Losses, on the other hand, represent other items that meet the definition of
expense and may or may not arise in the course of the ordinary activities of the
entity.

5. Other Items
Other items included in the computation of the total comprehensive
income are taxes and items of other comprehensive income. Income tax is the
sum of money payable to the government.

Lesson 2.2. Two Approaches in Making Statement of Comprehensive Income:

1. Single-step – Called single-step because all revenues are listed down in one
section while all expenses are listed in another. Net income is computed
using a “single-step” which is Total Revenues minus Total Expenses.
(Haddock, Price, & Farina, 2012)
2. Multi-step – Called multi-step because there are several steps needed in
order to arrive at the company’s net income. (Haddock, Price, & Farina,
2012)

The two are only formats and will yield the same amount of net income/loss.
The single-step SCI is more commonly used by service companies while
multi-step format is more commonly used by merchandising companies
Sample Format of Statement of Comprehensive Income:

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 LEARNING IS FUN COMPANY
Statement of Comprehensive Income Heading
For the period ended December 31, 2019
Sales Revenue P 100,000.00 Revenue
Less: Expenses
Salaries Expense 40,000.00
Rent Expense 20,000.00 Expenses
Depreciation 10,000.00
Utilities 5,000.00
Miscellaneous Expense 1,000.00 76,000.00 Net income/loss
Net Income P 24,000.00
Figure 2.1 Sample Format of Statement of Comprehensive Income using a SingleStep
Approach. (This is commonly used in Service Concern Type of Business)

Lesson 2.3. Steps in Preparing a Statement of Comprehensive Income using Single-

Step Approach

1. Draft the Appropriate Title

The appropriate title for the for Learning is Fun Company as shown above is;
Learning is Fun Company
Statement of Comprehensive Income
For the period ended December 31, 2019

2. Determine Total Revenue from the Trial Balances

Refer to the example above, the total revenue which came from the total sales
is P 100,000.00.
Sales Revenue P 100,000.00

3. Determine total Operating Expenses

Based on the example above, our expenses can be determined as follows;
Salaries Expense 40,000.00
Rent Expense 20,000.00
Depreciation 10,000.00
Utilities 5,000.00
Miscellaneous Expense 1,000.00

4. Determine the effect of other items

Based on our worksheet, there are no items pertaining to gains, losses, and
other comprehensive income. Income taxes are also ignored in the case.
Having noticed such items, net income can now be determined by deducting
Sales Revenue from Operating Expenses as shown on the example above.

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 Sample Format of Statement of Comprehensive Income using a Multi-Step
Approach.

ABM TRADING
STATEMENT OF COMPREHENSIVE INCOME Heading
FOR THE PERIOD ENDED DECEMBER 31, 2019
Sales 129,000
Less: Sales Returns & Allowances 7,000 Revenue
Sales Discounts 3,000 10,000
Net Sales 119,000
Less: Cost of Sales
Merchandise Inventory, Beginning 80,000
Add: Purchases 50,000
Freight In 2,000
Total Purchases 52,000 Cost of Sales
Less: Purchase Returns & Allowances 4,500
Purchase Discounts 5,000 9,500
Total Goods Available for Sale
Less: Merchandise inventory, End 50,000 72,500
Gross Profit 46,500
Less: Administrative and Operating Expenses
Salaries 14,500
Freight Out 3,500
Insurance Expense 500
Interest Expense 580 Cost of Sales
Bad Debts 7,400
Depreciation-Store Equipment 10,500
Depreciation-Store Furniture 7,200 44,180
Net Income 2,320
Add: Other Income
Commission Income 7,000 Cost of Sales
Interest Income 345 7,345
Net Income for the Period 9,665
======

Figure 2.2 Sample Statement of Comprehensive Income using Multiple-Step Approach.

Lesson 2.4. Steps in Preparing SCI Using Multiple-Step Approach:

1. Determine the revenues.

Since the entity is a merchandising concern, its revenue will come from sales.
The revenue to be presented in the statement of comprehensive income must
be net of the discounts, return and allowances. Sales discounts and returns and
allowances are called contra revenue because it is on the opposite side of the
sales account. The sales account is on the credit side while the reductions to
sales accounts are on the debit side. This is “contrary” to the normal balance of
the sales or revenue accounts. (Haddock, Price, & Farina, 2012)
Sales returns – This account is debited in order to record returns of customers
or allowances for such returns.(Haddock, Price, & Farina, 2012) Sales returns
occur when customers return their products for reasons such as but not limited
to defects or change of preference.
Sales discount – This is where discounts given to customers who pay early are
recorded. (Haddock, Price, & Farina, 2012) also known as cash discount. This
is different from trade discounts which are given when customers buy in bulk.

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 Sales discount is awarded to customers who pay earlier or before the deadline.
(Sales less Sales Discounts and Returns is equal to Net Sales)
2. Determine the Net Purchases, Cost of Sales and Gross Profit
This account represents the actual cost of merchandise that the company was
able to sell during the year. (Haddock, Price, & Farina, 2012).

Beginning inventory – This is the amount of inventory at the beginning of the

accounting period. This is also the amount of ending inventory from the previous
period.
Net Cost of Purchases = Purchases + Freight In
Net Purchases = Purchases – (Purchase discount and purchase returns)

Purchases – amount of goods bought during the current accounting period.

Contra Purchases –An account that is credited being “contrary” to the normal
balance of Purchases account.
Purchase discount – Account used to record early payments by the
company to the suppliers of merchandise. (Haddock, Price, & Farina, 2012)
This is how buyers see a sales discount given to them by a supplier.
Purchase returns and allowances – Account used to record merchandise
returned by the company to their suppliers. (Haddock, Price, & Farina,2012)
This is how buyers see a sales return recorded by their supplier.

Freight In – This account is used to record transportation costs of merchandise

purchased by the company. (Haddock, Price, & Farina, 2012) Note that there
is a difference between freight-in and freight-out. Freight-in denotes charges
pertaining to the receipts or purchase of goods. Freight-in is accounted for as
an addition to purchases. Freight-out, on the other hand, pertains to the delivery
of cost of goods sold. Freight-out is treated as a selling expense.

Add Beginning inventory and Net cost of Purchases to get Cost of Goods
Available for Sale

Ending Inventory – amount of inventory presented in the Statement of Financial

Position. Total cost of inventory unsold at the end of the accounting cycle.

Sales less Cost of Goods Sold is Gross Profit

3. Determine the Administrative and Operating Expenses

General and Administrative Expenses –These expenses are not directly
related to the merchandising function of the company but are necessary for the
business to operate effectively. (Haddock, Price, & Farina, 2012) Example of
general and administrative expenses include utilities for home office, salaries of
admin personnel
Selling or Operating Expenses – These expenses are those that are
directly related to the main purpose of a merchandising business: the sale and
delivery of merchandise. This does not include the cost of goods sold and contra
revenue accounts. (Haddock, Price, & Farina, 2012) Examples of selling
expenses include sales commissions, delivery expenses, and advertising
expenses.

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 4. Determine the Net Income
Gross Profit less General and Administrative Expenses less Selling Expenses
is Net Income for a positive result while Net Loss for a negative result.

What’s More

Activity 1.2.2 Classify Me!

Think of all elements or accounts in the Statement of Comprehensive Income

for service and merchandising business, list it down and explain.

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 What I Have Learned

Activity 1.2.3 Tell Me the Truth

Instruction: True or False. Write the word “True” if the statement is correct and
“False” if it is incorrect. Write the answer on the space provided before each number.

________ 1. Income statement shows the profitability of the business.

________ 2. It is customary for service organization industries operated as sole

proprietors to omit the cost of service.

________ 3. Freight-in charges pertain to the receipt or purchase of goods.

________ 4. Income statement reflects the performance of an entity for a specified

time period.

________ 5. Freight-out is treated as an administrative expense.

________ 6. The income statement heading specifies a point of time, indicating “as of
or “as at”.

________ 7. Revenue is the amount earned by a business in its main operating

activities.

________ 8. When a company disposes equipment and receives an amount more

than the carrying value of assets in the accounting records, the company should record
or report gain.

________ 9. The multistep income statement shows gross profit in its presentation.

________10. The single step income statement format segregates the operating
revenues and expenses from the non-operating revenues.

________11. Net sales minus the cost of goods sold equals to gross profit.

________12. Gross profit minus operating expenses is best defined as net sales.

________13. Gross profit is computed as the difference between the net sales and
cost of sales.
________14. The statement of comprehensive income informs the reader about the

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“performance” and activities of the company for a certain period.

________15. Salary of personnel in the production department is considered to be

operating expenses.

What I Can Do

Activity 1.2.4. Solving the Problem

Case #1. Sindayen Engineering Consultants

The following are the accounts of Sindayen Engineering Consultants for December
31, 2019.

Professional Fees 625,000.00

Salaries Expense (62,500.00)
Supplies Expense (93,750.00)
Depreciation Expense (75,000.00)
Utilities Expense (50,000.00)
Insurance Expense (25,000.00)
Rent Expense (112,500.00)
Loss on sale of equipment (50,000.00)

You are employed by the entity as its bookkeeper in its first year of operation. You
will prepare the necessary financial statement for the current year;
Instructions:

1. Determine the net income.

2. Prepare a Statement of Comprehensive Income using Single-Step Approach.

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Activity 1.2.5. Solving the Problem

Case #2. Tee Shirts Company.

Refer to the partial trial balance of Tee Shirts Company below;

TEE SHIRTS COMPANY

TRIAL BALANCE
DECEMBER 31, 2019

ACCOUNTS DEBIT CREDIT

Inventory, beginning 2,000,000.00
Sales 15,000,000.00
Sales Returns and Allowances 10,000.00
Sales Discount 120,000.00
Purchases 8,000,000.00
Freight-in 200,000.00
Freight-out 500,000.00
Purchase Discounts 100,000.00
Purchase Returns and Allowances 10,000.00
Salary Expense 1,000,000.00
Utilities Expense 240,000.00
Permit & Licenses 10,000.00
Repair and Maintenance 100,000.00
Depreciation 120,000.00
Inventory, end 1,750,000.00

You are employed by the company as its bookkeeper in its first year of operations.
You will prepare the necessary financial statement for the current year.
Instructions:
1. Compute for the net sales for the year.
2. Compute for the cost of sale for the year.
3. Compute for the gross profit for the year.
4. Compute for the income for the year.
5. Prepare a Statement of Comprehensive Income using a Multi-step
Approach.

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Activity 1.2.6. Choosing the Right One

Read and carefully examine the statements and choose the best answer.

1. Select the most appropriate description of the statement of comprehensive

income’s key features.
A. A statement of comprehensive income is like a picture that depicts a static
image of an entity.
B. A statement of comprehensive income is like a moving video that depicts a
moving scene of an entity.
C. A statement of comprehensive income contains assets, liabilities, and
equity.
D. A statement of comprehensive income is dated “As of December 31, 2019”

2. Which is an appropriate date for a statement of comprehensive income?

A. “As of December 31, 2019”
B. “For the period ended December 31, 2019”
C. Either A or B
D. Neither A or B

3. Which of the following is an element of a Statement of Comprehensive

Income?
A. Sales
B. Accounts Payable
C. Notes Receivable
D. Capital
4. Which of the following is an element of a Statement of Comprehensive Income?
A. Notes Payable
B. Bonds Payable
C. Service Fee
D. Capital

5. Which of the following is an element of a Statement of Comprehensive Income?

A. Note Payable
B. Interest Expense
C. Interest Receivable
D. Bonds Payable

6. Which of the following is an element of a statement of comprehensive income?

A. Interest Payable
B. Interest Expense
C. Rent Expense
D. Prepaid Rent

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 7. Which of the following is an element of a statement of comprehensive income?
A. Account Payable
B. Interest Payable
C. Interest Receivable
D. Gross Profit

8. Which of the following is only ancillary to the entity’s operation?

A. Professional fees charged by a law firm
B. Sales revenue earned by a variety store
C. Sales revenue earned by a department store
D. Gain on sale of property, plant and equipment

9. Which of the following is classified as selling expenses?

A. Salaries of corporate executive
B. Salaries of salesman
C. Depreciation of corporate headquarters
D. Depreciation of automobile

10. Which of the following is the correct gross profit formula?

A. Sales + Cost of Sales = Gross Profit
B. Sales + Gross Profit = Cost of Sales
C. Sales – Gross Profit = Cost of Sales
D. None of the above.

Congratulations! You have just finished Lesson 2 of this module. Let’s recap!

The single-step format uses only one subtraction function to calculate net
income; net income = (revenue + gains) – (expenses + losses). The heading of the
statement of comprehensive income or income statement includes the name of the
company which appears first, followed by the title “Statement of Comprehensive
Income”. The third line tells the reader the time interval reported on the profit and loss
statement. Since income statements can be prepared for any period of time, you must
inform the reader of the precise period of time being covered.

An alternative to the single-step income statement is the multiple-step income

statement because it uses multiple subtractions in computing the net income shown
on the bottom line. The multiple-step profit and loss statement segregates the
operating revenues and operating expenses from the non-operating revenues,
nonoperating expenses, gains and losses. The multiple-step statement of
comprehensive income also shows the gross profit (net sales minus the cost of goods
sold).

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